Flash Fixed Income Report /

LatAm: More sovereign bonds on the way

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    21 January 2020
    Published byTellimer Research

    Chile, Colombia and the Dominican Republic are all set to issue new bonds in the LatAm sovereign space. Chile (The Republic of Chile) seems to continue to defy its current (albeit waning) political issues and is planning to come to the bond market with a two-tranche, euro-denominated bond as follows:

    • Tranche A: An increase of the EUR861.0mn, 0.93% senior unsecured bonds due 2031 (currently trading at cEUR101.672 (ALLQ) to yield c0.67% (g-spread: 90bps; z-spread: 51bps), with a final spread guidance of MS+50bps, which we believe is fair as it almost mirrors identically the z-spread of the existing bond. We have not yet received information on the potential size of the tap, but expect it to be around EUR600.0mn given the favourable market conditions prevailing for new issues; 
    • Tranche B: A "benchmark size" (which we believe could be up to EUR1.0bn) in senior unsecured bonds due 2040 and with a final spread guidance of MS+80bps. For reference and valuation purposes, we choose Chile's EUR1.65bn, 1.875% senior unsecured bonds due 2030, currently seen trading at cEUR113.33 (ALLQ) to yield c0.55% (g-spread: 80bps; z-spread: 44bps), making the new 20-year bonds slightly more attractive than Tranche A, but still within the range that we consider to be fair value ie, MS+70bps to MS+75bps. 

    These bonds are expected to be "Green Bonds" and rated A1/A+/A.

    Colombia (the Republic of Colombia or COLOM), rated Baa2/BBB-/BBB, is also planning a two-tranche bond as follows:

    • Tranche A: US$500mn (maximum) in 10-year senior unsecured bonds with an initial price guidance of T+155bps. For comparison and valuation purposes, we choose COLOM US$2.0bn, 4.50% senior unsecured bonds, currently seen trading at cUS$111.631 (ALLQ) to yield c3.0% (g-spread: 125bps; z-spread: 130bps), which makes the guidance too generous, in our view – we expect the final pricing of the new bonds to be in a range of T+135bps to T+140bps;
    • Tranche B: A tap of the sovereign's existing US$1.5bn, 5.20% senior unsecured bonds with an initial price guidance of T+200bps. The currently outstanding bonds are trading at cUS$121.328 (ALLQ) to yield c3.95% (g-spread: 174bps; z-spread: 205bps). We believe the tranche will be between US$500.0mn and US$1.0bn, and given the current trading levels, we believe that final pricing will be at guidance or slightly tighter – it could come within a range of T+195bps and T+200bps.

    Finally, the Dominican Republic (Ba3/BB-/BB-) is expected to start a series of investors meetings today, with the aim of issuing a 144A/RegS bond in the coming days.